Co-Signing a Loan

When you co-sign any type of loan, you are taking on the risk the lender would not; ensuring that the person you co-sign for is going to make the payments. If they do not, you are going to be responsible for the owed debt.

When determining if you should co-sign a loan for someone, you need to consider the following:

– Will you be able to pay the loan if the borrower goes into default? If you can not, not only will your credit be adversely affected, you can be sued by the lending creditor.

– When you co-sign a loan, your chances for obtaining approval for a loan for your own personal use Declines because of your current obligation. More specifically, the debt you co-sign for is considered your debt.

– If you secure the loan you co-sign for with some sort of personal property, ie your home or car, you run the risk of having these items taken away from you if the loan goes into default and you can not pay.

– If the borrower does not pay their loan, not only will you become responsible for the debt, you are also going to be responsible for any of the late fees and collections associated with the over-due debt.

You should also do the following when co-signing a loan:

– Get in touch with the lender and make sure that you will be contacted in writing as soon as soon as the borrower is late on a payment. This will give you time to get in touch with the borrower and fix the situation before the account goes into collections. If the account does enter into collections, you will be responsible for paying off the entire debt at one time.

– Get a hold of copies of all the stipulations and terms of the loan.

Some More Advice to Follow If You Are Going to Co-Sign a Loan

Prior to co-signaling, you should contact the creditor to see if your can negotiate your liability if the loan goes into default. More specifically, you can have your liability changed so that you only are obliged to pay only the loan balance and not any other late fees. It is always a good idea to get any final, negotiated Clauses in writing.

What Are the Benefits of Being a Loan Co-signer?

Co-singing a loan can be a good idea if you are certain that the borrower is going to repay the money. For example, co-signaling makes sense if you are the parent of a child with no credit, but a steady income, looking to buy a home for the first time. You will help your child get the mortgage financing them are looking for, while helping build their credit rating.

It is very common for someone's credit to be adversely affected as a result of divorce. This will hurt their ability to get approved for loans and credit even though they have a steady income. Co-singing a small personal loan in this instance will help them re-establish their credit.

In conclusion …

As mentioned, there are instances when co-signing a loan is harmless. However, the majority of the time, it is a very risky move. As a matter of fact, studies have shown that co-signers end up paying the debt of the borrower 80% of the time. When co-signing any loan for any purpose, friend of family, PROCEED WITH CAUTION!